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Google to Big Telecom: Work with us or perish

Nicole Goodkind
Nicole Goodkind

Google Inc. (GOOGL) announced yesterday that it plans to unveil a new wireless service within the next few months. The service would be small and available within the U.S, and it is intended to integrate with Android products. Google’s already-strained relationship with the telecom industry could widen if the product is perceived as a threat to wireless carriers like Verizon (VZ), Sprint (S) and AT&T (T).

Google SVP Sundar Pichai, who oversees Android products, Chrome and Google Apps, broke news of the service which will merge WiFi and cell networks “seamlessly” during a discussion at the Mobile World Congress in Barcelona. He stressed that the company did not intend to become a large network operator and that he was working on partnerships with already established networks.  He did not specify names.

Pichai claims that he wants to show the telecom industry what’s possible. Henry Blodget thinks that’s an understatement. “It’s showing them what’s possible by waving a big stick at them saying, ‘Make things better for consumers or we will,” he says. Blodget believes that the wireless industry hasn’t advanced since the 1990s.  He believes there’s too much friction in the contract process, too much throttling of bandwidth and a lot of profit up for grabs in the wireless industry. “It is high time somebody came in and said, ‘We are going to launch a much more convenient service. Buy your device, turn it on, there you go.’”

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Google is currently sitting on $12 billion on free cash flow, and $64.4 billion in cash and short-term investments. The company has money coming out of its ears, despite spending $9.8 billion on R&D last year. “They can either just sit there and milk the search business or they can look at other big problems to tackle, and this is one of them,” says Blodget. “Google is tired of sitting around and waiting for the carriers to do it-- they’re monopolies in many ways.  There’s no pressure on them.”

Meanwhile another Silicon Valley titan, Mark Zuckerberg, gave the keynote speech at the Mobile World Congress and actually gave credit to the telecom industry. He discussed Internet.org, a project backed by Facebook (FB) that provides free internet services to people in emerging markets which some see as a threat to big Telecom. He told the audience that “it’s important not to lose sight of the fact that the real companies that are driving this are the operators,” hinting that Facebook is not their enemy.

Facebook can involve mobile and wireless carriers in their ventures, says Blodget, but “what Zuckerberg is trying to do is just clarify, ‘We’re not trying to kill you but we are going to get our service to everyone on the planet and you can’t stop us. So you can either play ball with us and we can all make happy money together or you can just sit there.’” In other words, Facebook will forge ahead anyway.

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